September 23, 2006
Not okay
I'm generally a supporter of Wal-Mart, as I think it's a magnificent achievement in logistics and economics. But that doesn't mean they can do no wrong. According to this report, Wal-Mart has threatened to retaliate against any movie studios that sign deals with Apple to sell movies on iTunes for less than they sell to Wal-Mart.
As Wal-Mart is the single biggest client of Hollywood, this is not an insignificant threat.
Wal-Mart, or any company, is certainly allowed to use its size and volume to extract price concessions from other companies. But retaliation for doing business with third-parties is anti-competitive in that it does not allow the market to set prices.
Monopolies aren't bad because they're the end result of capitalism, they're bad because they obstruct and pervert capitalism. When a single player has substantial control over a segment of the market, the prices in that segment start being affected by things outside natural supply and demand, e.g. retaliatory actions for doing business with competitors.
If the claims of the studios are substantive, Apple may well have an anti-trust action against Wal-Mart. I'll be asking my civil procedure professor, who has literally written the book (an eleven volume set) on anti-trust law, about this on Monday.
This does not surprise me. Wal-mart has done business with threats for years. It is the only way they are able to keep their prices as low as they do. No, it is not alright, but since the general public is ignorant of these practices, they keep on shopping there. And, I wonder how many would stop shopping there even if they did know.
Posted by: Lisa at September 23, 2006 09:34 PMI suspected something like this would happen.
"Doing business with threats" is how business is generally done. It may not be overt, but any counter-offer or attempt at haggling is an implied threat: "Give me what I want or I'll go someone else." Wal-Mart routinely uses their buying power to demand price discounts. Threatening to go to someone else if demands are not met is perfectly okay. Even using one's size as a bargaining chip is perfectly okay.
But it is not okay to attempt to interfere with a client's business relationship with third-parties. I have not heard of Wal-Mart doing this before, though I would be interested to see examples should they be forthcoming.
That being said, the public doesn't need to know about these practices, because the public has no vested interest in such practices. The public's interest, as consumers, is the availability of desired goods at low prices. Wal-Mart certainly meets that interest.
Posted by: ryan at September 24, 2006 08:42 AMTalking about "retaliation" and "threats" in regards to this issue seems to be misleading. These words imply force, and I don't see how Wal-Mart is threatening force. These movie studio companies are free to contract with any company they choose, whether that be Wal-Mart or Apple. If they value Apple's movie business more than they value their other business with Wal-Mart, then they will choose Apple. Wal-Mart is doing nothing more than extending an offer. These other companies can take it or leave it. By staying with Wal-Mart, they are simply expressing the fact that they value Wal-Mart's non-movie business more than they value Apple's movie business.
The only anti-competitive behavior in this situation would be if Apple uses the federal government to forcibly prohibit Wal-Mart and these studio companies from freely contracting with each other.
It's important to keep in mind that the only reason that Wal-Mart is such a large company to begin with, and has the market share that it does, is because it has proven itself to be better than all of its competitors at satisfying consumer demand in its particular market(s). By purchasing goods and services at Wal-Mart, consumers have chosen Wal-Mart as the top business in these markets. If Apple sees a chance to satisfy unmet consumer demand in the movie market, then they are free to attempt to convince consumers that they are a better choice than Wal-Mart. If Apple was better at meeting consumer demand than they have been, and if they had provided a more highly valued service to consumers than Wal-Mart has, then perhaps they would be in the position to negotiate the best deals with the studio companies. The consumers have already, through their purchases, chosen Wal-Mart as their preferred distributor for movies. Apple can blame no one but themselves for failing to provide as highly-valued of a product as Wal-Mart has.
Posted by: Ben at September 26, 2006 11:14 AMYeah, see my more recent post.
Posted by: ryan at September 26, 2006 12:20 PM